Jakarta - Indonesia is in talks with Australia about temporarily housing asylum-seekers stranded in Indonesia on an island in the archipelago if Canberra covers the cost, according to a report Friday.
Canberra has introduced hardline policies to stem the influx of asylum-seekers reaching its shores on people-smuggling boats, with those arriving by sea denied resettlement in Australia even if found to be genuine refugees.
Instead they are turned back to their country of departure or sent to the tiny state of Nauru and Papua New Guinea's Manus island.
Indonesia, a major transit point for asylum seekers en route to Australia, has long been riled by the tough approach, particularly the policy of turning migrant boats back to the archipelago when it is safe to do so.
However, there have been signs that ties between the neighbours are improving, and Security Minister Luhut Panjaitan told the Jakarta Post newspaper that Indonesia could work with Australia to house migrants on its territory.
"We can discuss the possibility of allocating an island (for the refugees) but Australia is required to entirely finance it," he told the daily.
He said there had been talks about the island, but they were "preliminary".
He said that many asylum-seekers ended up stuck in Indonesia's poorer provinces and could create tensions with local residents, according to the newspaper.
Panjaitan's office had no immediate comment to AFP on the report.
Jakarta entered into a similar scheme in the past, hosting about 200,000 Vietnamese on Galang island off Sumatra between 1979 and 1996, after many fled the country by boat following the Vietnam War.
Under the new plan, Panjaitan said asylum-seekers should only be housed temporarily on the island, as many of the Vietnamese ended up staying in Indonesia for too long.
He made the offer after a trip to Australia earlier this week and ahead of a return visit from Australian officials to Indonesia in the coming weeks.
However, the minister also demanded that Australia end its policy of turning boats back to Indonesia.
"I told them that such actions are wrong and against humanitarian principles," he said.
Canberra has made no secret of the fact that it is in talks with a number of countries about taking refugees now living on the two Pacific islands.
Earlier this year, Australia struck a deal with Cambodia to take in refugees in exchange for millions of dollars in aid over the next four years.